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AnaCredit: Challenge or Opportunity?

08/03/2018 – By Abhishek Awasthi, Product Manager, AxiomSL EMEA

With six months to go until the submission deadline for complete datasets, AnaCredit requirements continue to pose substantial challenges to the banking industry. With AnaCredit reporting, the data quality and data management have become key focus areas. Sourcing data from multiple and disparate data sources and certifying its completeness remains as the main challenge.

Initiated by the European Central Bank (ECB), AnaCredit or analytical credit dataset regulation intends to collect granular credit data on individual bank loans assigned by credit institutions to legal entities in the eurozone. Stage one of the Regulation involves the reporting of data on loans to legal entities exceeding a pre-defined threshold (in most countries, 25K Euros). Subsequent stages of AnaCredit will increase the reporting scope including the number of eligible instruments as well as the counterparties under examination.

Such level of detailed and broad dataset requirement imposes considerable burden on credit institutions. The submission timeline will start on 30th September 2018 and a few countries such as Germany and Ireland have already opened their test windows since October 2017. The test windows as well as its eventual go-live has been phased between now until September 2018.

Key challenges

National Central Banks (NCBs) are requested to submit AnaCredit reporting to the ECB. Financial institutions (FIs) therefore will need to report to their NCBs. Multi-entity FIs, in particular, would struggle to tackle this multi-jurisdictional aspect of the regulation.

Another challenge of AnaCredit is indubitably the granular data requirement from the ECB. Where other types of reporting typically would focus on total loan values, the AnaCredit demands details on a loan by loan basis with thorough information. Thus, data quality is paramount and the typical total value adjustments due to data quality issues would not be viable under the AnaCredit regime.

Firms also face stringent obligations around the frequency of reporting that are monthly, quarterly or ‘on change’. Monthly and quarterly reporting must be submitted regularly according to certain timelines, whereas ‘on change’ reporting must only be submitted if a change occurs on the loan data, having already completed the initial reporting. All in all, these factors raise a lot of implementation difficulties for firms already overwhelmed with a compliance-specific agenda.

From compliance to performance

FIs should be able to tackle the statistical reporting, operational reporting, transactional reporting and other regulatory demands in a much more effective and simplified way. We are currently seeing the requirements of regulatory reporting converge into a similar consistent format. This could be an opportunity for FIs to capture this data in an efficient and logical method, which would ultimately allow them to use the same sourcing to satisfy all the data reporting, without constantly facing different data requirements each time. In the case of AnaCredit, when the envisaged extension of the reporting scope comes into effect, firms can complete their reporting using this one common dataset.

Given that all the data will be collected in one place, reporting agents will get to access a consistent, clear snapshot of their current loan position, with a comparable view from the previous months. From a business and operational model perspective, this is an extremely useful way of assessing the data and developing new strategies accordingly. Specific demands of AnaCredit will also shift the focus from merely collecting and submitting the information to also ensuring better data quality.

Driving value from regulatory demands through technology

There are two ways of approaching the challenges of the AnaCredit. The first is to apply short term tactical fixes and the second is a strategic approach by seeing the opportunities behind the multifaceted nature of the regulation with a long-term view in mind.

Coming back to our point, AnaCredit may currently seem as an unprecedented regulatory challenge. However, in the longer term, it is an opportunity for improvement that would present FIs with invaluable data management capabilities as well as improving efficiency of their business and operational models. Firms need a strategic approach to deal with the cost and complexity of compliance and at the same time, reap the benefits of the standard.

Regulatory compliance and outsourced software solutions are becoming inextricably intertwined. FIs are increasingly realising that their reporting and risk management functions call for an effective automation. This realisation brought the banks and regulators together to create Banks’ Integrated Reporting Dictionary (BIRD), which includes the data and the transformation procedures that banks may follow to meet AnaCredit reporting requirements. AxiomSL’s strategic regulatory platform has adapted this method with common Data Dictionary (DD) feature. Accessed through the dashboard, our common data sourcing module is consistent across all the countries in scope for AnaCredit. We offer multi-jurisdictional reporting capability whereby all the AnaCredit reports can be submitted through our strategic platform to the specific jurisdiction in the required format. AxiomSL’s inherent data management capabilities, combined with its transparent and open platform empower FIs to manage very large data volumes with robust data aggregation and data governance features.

As reporting agents are flooded with regulatory demands, they should think strategically for tackling these complex local and global compliance challenges in 2018 and beyond.